Holdco

What is Holdco?

Holdco, also known as a holding company, is an entity that holds a majority stake in subsidiary companies and, therefore, can exert influence and right to control its business activities. A Holdco may exist solely to gain control over and managing subsidiaries or for conducting business activities along with controlling subsidiaries.

Types of Holdco

The types of holding company are enlisted below:

Types of Holdco

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#1 – Pure

A Holdco that is solely formed for the purpose of acquiring stock in other entities is termed as pure. Such type of a holding company is only engaged in acquiring stock in other companies and does not wish to participate in any other commercial activity.

#2 – Mixed

A holding company that is engaged in the acquisition of stock in other entities as well as performs its business activities are vested with a mixed Holdco status. Hence, it is termed as a holding-operating entity.

#3 – Immediate

A holding company that acts as a subsidiary companySubsidiary CompanyA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling company.read more of some other entity is termed as an immediate holding company. Such a Holdco retains control or voting stock of other entities.

#4 – Intermediate

A holding company can be vested with an intermediate status if the same acts as a holding company of one company and a subsidiary of another company.

Example of Holdco

Let’s discuss an example of Holdco.

XYZ Limited recently bought 56 percent shares of AB Corporation Limited and is continuing with its regular trading activities too. Can XYZ Limited be affirmed with the status of a holding company? If yes, then what type of a holding company?

Solution

Any company can be deferred with the status of a holding company if it acquires more than 50 percent of the shares of a subsidiary. From the above case, it can be seen that XYZ Limited has acquired more than 50 percent shares that is 56 percent share of AB Corporation Limited, and hence, the same can be deferred with the status of a holding company. XYZ Limited is a mixed holding company as it continues with its regular trading activities even after gaining control over AB Corporation Limited.

Holdco

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Advantages of Holdco

There are several different advantages of the Holdco are as follows:

Disadvantages of Holdco

The different limitations and drawbacks of the Holdco include the following:

Important Points

Some of the important points of the Holdco include the following:

Conclusion

A Holdco or a holding company is an entity that purchases and owns shares in one or more entities. It allows the parent company to gain the right to have an influence on its subsidiary company and control its business decisions.

Reasons like tax optimization, ease of formation, large capital, avoidance of competition, asset protection, investment management, etc. are sufficient to define why entrepreneurs these days are opting for owning shares in another company instead of a merger or consolidation.

However, there are also disadvantages like misuse of power, exploitation of subsidiaries, over-capitalization, etc. associated with holding companies. Therefore, companies must wisely make a choice and carefully handle the rewards and repercussions of the decision to become a parent company of a subsidiary company.

This article has been a guide to what is Holdco. Here we discuss types of holding companies along with a practical example, advantages and limitations. You can learn more from the following articles –

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